WASHINGTON - In a victory for auto dealers and Senate Republican Whip Jon Kyl, President Obama and congressional Republicans agreed on a tentative tax-cut package that would head off a huge increase in the estate tax.

The agreement yesterday, which still has to be approved by Congress, would set a maximum estate-tax rate of 35 percent for two years with an exemption of $5 million for individuals and $10 million for couples, reported Automotive News.

If Congress fails to approve the plan by the end of the year, the estate tax will rise to a maximum rate of 55 percent with an exemption of $1 million per person.

“This (proposal) will help restore consumer confidence and speed economic recovery,” the National Automobile Dealers Association said in a statement today.

The NADA and other groups pushed for the estate-tax rate in the proposal as an alternative to the Obama administration's plan earlier this year for a 45 percent rate with an exemption of $3.5 million per person.

The average net worth of an auto dealership was $2.2 million in 2009, according to NADA data, suggesting that most dealerships would not be subject to any estate taxes under yesterday's proposal.

About half of all U.S. dealerships are second- and third-generation family businesses, NADA spokesman Bailey Wood said.

$900 billion cost

In addition to the estate tax proposal, the deal struck yesterday calls for a two-year extension of Bush-era income tax cuts at all income levels.

It also would extend unemployment benefits for long-term jobless and reduce worker payroll taxes for a year, among other things, at a cost of $900 billion over the next two years, according to the New York Times. Both parties have expressed concern about the deficit.

The federal estate tax expired this year as part of 2001 legislation to gradually raise the exemption while cutting income-tax rates.

This estate-tax expiration is scheduled to end Jan. 1, when rates are due to spring to 55 percent.

Obama said last night that he reluctantly accepted a compromise on the estate-tax proposal.

“The Republicans have asked for more generous treatment of the estate tax than I think is wise or warranted,” he said. “But we have insisted that that will be temporary.”

Kyl of Arizona, the No. 2 Senate Republican, and Sen. Blanche Lincoln, D-Ark., introduced in July a proposal to permanently set the estate tax rate at 35 percent with a $5 million exemption phased in over 10 years.

“Tonight's announcement marks an important first step in giving all American families and businesses the certainty that their taxes will not increase on Jan. 1,” Kyle said yesterday. “While I wanted the rates to be made permanent, the current political makeup of this lame-duck Congress would not allow that.”

The NADA and 52 other business groups - including the U.S. Chamber of Commerce and the National Federation of Independent Business - lobbied for the Kyl-Lincoln bill.